This blog is a commentary on contemporary business, politics, economics, society, and culture, based on the values of Reason, Rational Self-Interest, and Laissez-Faire Capitalism. Its intellectual foundations are Ayn Rand's philosophy of Objectivism and the theory of the Austrian and British Classical schools of economics as expressed in the writings of Mises, Böhm-Bawerk, Menger, Ricardo, Smith, James and John Stuart Mill, Bastiat, and Hazlitt, and in my own writings.

Tuesday, October 21, 2008

The news media are in the process of creating a great new historical myth. This is the myth that our present financial crisis is the result of economic freedom and laissez-faire capitalism.

The attempt to place the blame on laissez faire is readily confirmed by a Google search under the terms “crisis + laissez faire.” On the first page of the results that come up, or in the web entries to which those results refer, statements of the following kind appear:

“The mortgage crisis is laissez-faire gone wrong.”

“Sarkozy [Nicolas Sarkozy, the President of France] said `laissez-faire’ economics, `self-regulation’ and the view that `the all-powerful market’ always knows best are finished.”

“`America’s laissez-faire ideology, as practiced during the subprime crisis, was as simplistic as it was dangerous,’ chipped in Peer Steinbrück, the German finance minister.”

Recent articles in The New York Times provide further confirmation. Thus one article declares, “The United States has a culture that celebrates laissez-faire capitalism as the economic ideal….”[2] Another article tells us, “For 30 years, the nation’s political system has been tilted in favor of business deregulation and against new rules.”[3] In a third article, a pair of reporters assert, “Since 1997, Mr. Brown [the British Prime Minister] has been a powerful voice behind the Labor Party’s embrace of an American-style economic philosophy that was light on regulation. The laissez-faire approach encouraged the country’s banks to expand internationally and chase returns in areas far afield of their core mission of attracting deposits.”[4] Thus even Great Britain is described as having a “laissez-faire approach.”

The mentality displayed in these statements is so completely and utterly at odds with the actual meaning of laissez faire that it would be capable of describing the economic policy of the old Soviet Union as one of laissez faire in its last decades. By its logic, that is how it would have to describe the policy of Brezhnev and his successors of allowing workers on collective farms to cultivate plots of land of up to one acre in size on their own account and sell the produce in farmers’ markets in Soviet cities. According to the logic of the media, that too would be “laissez faire”—at least compared to the time of Stalin.

Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright defiled by such statements as those quoted above. Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force. This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual’s own government. This last is accomplished by such means as a written constitution, a system of division of powers and checks and balances, an explicit bill of rights, and eternal vigilance on the part of a citizenry with the right to keep and bear arms. Under laissez-faire capitalism, the state consists essentially just of a police force, law courts, and a national defense establishment, which deter and combat those who initiate the use of physical force. And nothing more.

The utter absurdity of statements claiming that the present political-economic environment of the United States in some sense represents laissez-faire capitalism becomes as glaringly obvious as anything can be when one keeps in mind the extremely limited role of government under laissez-faire and then considers the following facts about the present-day United States.

1) Government spending in the United States currently equals more than forty percent of national income, i.e., the sum of all wages and salaries and profits and interest earned in the country. This is without counting any of the massive off-budget spending such as that on account of the government enterprises Fannie Mae and Freddie Mac. Nor does it count any of the recent spending on assorted “bailouts.” What this means is that substantially more than forty dollars of every one hundred dollars of output are appropriated by the government against the will of the individual citizens who produce that output. The money and the goods involved are turned over to the government only because the individual citizens wish to stay out of jail. Their freedom to dispose of their own incomes and output is thus violated on a colossal scale. In contrast, under laissez-faire capitalism, government spending would be on such a modest scale that a mere revenue tariff might be sufficient to support it. The corporate and individual income taxes, inheritance and capital gains taxes, and social security and Medicare taxes would not exist.

2) There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce, and virtually all of which nowadays routinely ride roughshod over one or more important aspects of the economic freedom of the individual. Under laissez faire capitalism, eleven of the fifteen cabinet departments would cease to exist and only the departments of justice, defense, state, and treasury would remain. Within those departments, moreover, further reductions would be made, such as the abolition of the IRS in the Treasury Department and the Antitrust Division in the Department of Justice.

3) The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions, the most well-known of which include, besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA. Under laissez-faire capitalism, all such agencies and commissions would be done away with, with the exception of the FBI, which would be reduced to the legitimate functions of counterespionage and combating crimes against person or property that take place across state lines.

4) To complete this catalog of government interference and its trampling of any vestige of laissez faire, as of the end of 2007, the last full year for which data are available, the Federal Register contained fully seventy-three thousand pages of detailed government regulations. This is an increase of more than ten thousand pages since 1978, the very years during which our system, according to one of The New York Times articles quoted above, has been “tilted in favor of business deregulation and against new rules.” Under laissez-faire capitalism, there would be no Federal Register. The activities of the remaining government departments and their subdivisions would be controlled exclusively by duly enacted legislation, not the rule-making of unelected government officials.

5) And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level. Under laissez-faire capitalism, these too for the most part would be completely abolished and what remained would reflect the same kind of radical reductions in the size and scope of government activity as those carried out on the federal level.

What this brief account has shown is that the politico-economic system of the United States today is so far removed from laissez-faire capitalism that it is closer to the system of a police state than to laissez-faire capitalism. The ability of the media to ignore all of the massive government interference that exists today and to characterize our present economic system as one of laissez-faire and economic freedom marks it as, if not profoundly dishonest, then as nothing less than delusional.

Government Intervention Actually Responsible for the Crisis

Beyond all this is the further fact that the actual responsibility for our financial crisis lies precisely with massive government intervention, above all the intervention of the Federal Reserve System in attempting to create capital out of thin air, in the belief that the mere creation of money and its being made available in the loan market is a substitute for capital created by producing and saving. This is a policy it has pursued since its founding, but with exceptional vigor since 2001, in its efforts to overcome the collapse of the stock market bubble whose creation it had previously inspired.

The Federal Reserve and other portions of the government pursue the policy of money and credit creation in everything they do that encourages and protects private banks in the attempt to cheat reality by making it appear that one can keep one’s money and lend it out too, both at the same time. This duplicity occurs when individuals or business firms deposit cash in banks, which they can continue to use to make purchases and pay bills by means of writing checks rather than using currency. To the extent that the banks are then enabled and encouraged to lend out the funds that have been deposited in this way (usually by the creation of new and additional checking deposits rather than the lending of currency), they are engaged in the creation of new and additional money. The depositors continue to have their money and borrowers now have the bulk of the funds deposited. In recent years, the Federal Reserve has so encouraged this process, that checking deposits have been created equal to fifty times the actual cash reserves of the banks, a situation more than ripe for implosion.

All of this new and additional money entering the loan market is fundamentally fictitious capital, in that it does not represent new and additional capital goods in the economic system, but rather a mere transfer of parts of the existing supply of capital goods into different hands, for use in different, less efficient and often flagrantly wasteful ways. The present housing crisis is perhaps the most glaring example of this in all of history.

Perhaps as much as a trillion and a half dollars or more of new and additional checkbook-money capital was channeled into the housing market as the result of the artificially low interest rates caused by the presence of an even larger overall amount of new and additional money in the loan market. Because of the long-term nature of its financing, housing is especially susceptible to the effect of lower interest rates, which can serve sharply to reduce monthly mortgage payments and in this way correspondingly increase the demand for housing and for the mortgage loans needed to finance it.

Over a period of years, the result was a huge increase in the production and purchase of new homes, rapidly rising home prices, and a further spiraling increase in the production and purchase of new homes in the expectation of a continuing rise in their prices.

To gauge the scale of its responsibility, in the period of time just since 2001, the Federal Reserve caused an increase in the supply of checkbook-money capital of more than 70 percent of the cumulative total amount it had created in the whole of the previous 88 years of its existence—that is, almost 2 trillion dollars.[5] This was the increase in the amount by which the checking deposits of the banks exceeded the banks’ reserves of actual money, that is, the money they have available to pay depositors who want cash. The Federal Reserve caused this increase in illusory capital by means of creating whatever new and additional bank reserves as were necessary to achieve a Federal Funds interest rate—that is, the rate of interest paid by banks on the lending and borrowing of reserves—that was far below the rate of interest dictated by the market. For the three years 2001-2004, the Federal Reserve drove the Federal Funds Rate below 2 percent and from July of 2003 to June of 2004, drove it even further down, to approximately 1 percent.

The Federal Reserve also made it possible for banks to operate with a far lower percentage of reserves than ever before. Whereas in a free market, banks would hold gold reserves equal to their checking deposits, or at the very least to a substantial proportion of their checking deposits,[6] the Federal Reserve in recent years contrived to make it possible for them to operate with irredeemable fiat money reserves of less than 2 percent.

The Federal Reserve drove down the Federal Funds Rate and brought about the vast increase in the supply of illusory capital for the purpose of driving down all market interest rates. The additional illusory capital could find borrowers only at lower interest rates. The Federal Reserve’s goal was to bring about interest rates so low that they could not compensate even for the rise in prices. It deliberately sought to achieve a negative real rate of interest on capital, that is, a rate below the rate at which prices rise. This means that a lender, after receiving the interest due him for a year, has less purchasing power than he had the year before, when he had only his principal.

In doing this, the Federal Reserve’s ultimate purpose was to stimulate both investment and consumer spending. It wanted the cost of obtaining capital to be minimal so that it would be invested on the greatest possible scale and for people to regard the holding of money as a losing proposition, which would stimulate them to spend it faster. More spending, ever more spending was its concern, in the belief that that is what is required to avoid large-scale unemployment.

As matters have turned out, the Federal Reserve got its wish for a negative real rate of interest, but to an extent far beyond what it wished. It wished for a negative real rate of return of perhaps 1 to 2 percent. What it achieved in the housing market was a negative real rate of return measured by the loss of a major portion of the capital invested. In the words of The New York Times, “In the year since the crisis began, the world’s financial institutions have written down around $500 billion worth of mortgage-backed securities. Unless something is done to stem the rapid decline of housing values, these institutions are likely to write down an additional $1 trillion to $1.5 trillion.”[7]

This vast loss of capital in the housing debacle is what is responsible for the inability of banks to make loans to many businesses to which they normally could and would lend. The reason they cannot now do so is that the funds and the real wealth that have been lost no longer exist and thus cannot be lent to anyone. The Federal Reserve’s policy of credit expansion based on the creation of new and additional checkbook money has thus served to give capital to unworthy borrowers who never should have had it in the first place and to deprive other, far more credit worthy borrowers of the capital they need to stay in businesses. Its policy has been one of redistribution and destruction.

The capital it has caused to be malinvested and lost in housing is capital that is now unavailable for such firms as Wickes Furniture, Linens ‘N Things, Levitz Furniture, Mervyns, and innumerable others, who have had to go bankrupt because they could not obtain the loans they needed to stay in business. And, of course, among the foremost victims have been major banks themselves. The losses they have suffered have wiped out their capital and put them out of business. And the list of casualties will certainly grow.

Any discussion of the housing debacle would be incomplete if it did not include mention of the systematic consumption of home equity encouraged for several years by the media and an ignorant economics profession. Consistent with the teachings of Keynesianism that consumer spending is the foundation of prosperity, they regarded the rise in home prices as a powerful means for stimulating such spending. In increasing homeowners’ equity, they held, it enabled homeowners to borrow money to finance additional consumption and thus keep the economy operating at a high level. As matters have turned out, such consumption has served to saddle many homeowners with mortgages that are now greater than the value of their homes, which would not have been the case had those mortgages not been enlarged to finance additional consumption. This consumption is the cause of a further loss of capital over and above the capital lost in malinvestment.

A discussion of the housing debacle would also not be complete if it did not mention the role of government guarantees of many mortgage loans. If the government guarantees the principal and interest on a loan, there is no reason why a lender should care about the qualifications of a borrower. He will not lose by making the loan, however bad it may turn out to be.

A substantial number of mortgage loans carried such guarantees. For example, a New York Times article describes the Department of Housing and Urban Development as “an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans.” The article describes how HUD progressively reduced its lending standards: “families no longer had to prove they had five years of stable income; three years sufficed...lenders were allowed to hire their own appraisers rather than rely on a government-selected panel...lenders no longer had to interview most government-insured borrowers face to face or maintain physical branch offices,” because the government’s approval for granting mortgage insurance had become automatic.

The Times’ article goes on to describe how “Lenders,” such as Countrywide Financial, which was among the largest and most prominent, “sprang up to serve those whose poor credit history made them ineligible for lower-interest `prime’ loans.” It notes the fact that “Countrywide signed a government pledge to use `proactive creative efforts’ to extend homeownership to minorities and low-income Americans.”[8] “Proactive creative efforts” is a good description of what lenders did in offering such bizarre types of mortgages as those requiring the payment of “interest only,” and then allowing the avoidance even of the payment of interest by adding it to the amount of outstanding principal. (Such mortgages suited the needs of homebuyers whose reason for buying was to be able to sell as soon as home prices rose sufficiently further.)Just as vast numbers of houses were purchased based on an unfounded belief in an endless rise in their prices, so too vast numbers of complex financial derivatives were sold based on an unfounded belief that the Federal Reserve System actually had the power it claimed to have of making depressions impossible, a power which the media and most of the economics profession repeatedly affirmed.

Derivatives have received such a bad press that it is necessary to point out that the insurance policy on a home is a derivative. And many of the derivatives that were sold and which are now creating problems of insolvency and bankruptcy, namely, “credit default swaps (CDSs),” were insurance policies in one form or another. Their flaw was that unlike ordinary homeowners’ insurance, they did not have a sufficient list of exclusions.Homeowners’ policies make exclusions for such things as damage caused by war and, in many cases, depending on the special risks of the local area, earthquakes and hurricanes. In the same way, the more complex derivatives should have made an exclusion for losses resulting from financial collapse brought on by Federal-Reserve-sponsored massive credit expansion. (If it is impossible actually to write such an exclusion, because many of the losses may occur before the nature of the cause becomes evident, then such derivatives should not be written and the market will no longer write them because of the unacceptable risks they entail.) But decades of brainwashing by the government, the media, and the educational system had convinced almost everyone that such collapse was no longer possible.Belief in the impossibility of depressions played the same role in the creation and sale of “collateralized debt obligations (CDOs).” Here disparate home mortgages were bundled together and securities were issued against them. In many cases, large buyers bundled together collections of such securities and issued further securities against those securities. As more and more homeowners have defaulted on their loans, the result has been that no one is able directly to judge the value of these securities. To do so, it will be necessary to disentangle them down to the level of the underlying individual mortgages. Such tangles of securities could never have been sold in a market not overwhelmed by the propaganda that depressions are impossible under the government’s management of the financial system.

Finally, a discussion of the housing debacle would not be complete if it did not include mention of forms of virtual extortion that served to encourage loans to unworthy borrowers. Thus, the online encyclopedia Wikipedia writes:

The Community Reinvestment Act [CRA]...is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods... CRA regulations give community groups the right to comment or protest about banks'on-compliance with CRA. Such comments could help or hinder banks' planned expansions.

The meaning of these words is that the Community Reinvestment Act gives the power to “community groups,” to determine in an important respect the financial success or failure of a bank. Only if they are satisfied that the bank is making sufficient loans to borrowers to whom it would otherwise choose not to lend, will it be permitted to succeed. The most prominent such community group is ACORN.Part and parcel of the environment that has made an act such as the CRA possible, is threats of slander against banks for being “racist” if they choose not to make loans to people who are poor credit risks and also happen to belong to this or that minority group. The threats of slander go hand in glove with intimidation from various government agencies that exercise discretionary power over the banks and are in a position to harm them if they do not comply with the agencies’ wishes. The same points apply to mortgage lenders other than banks.

What this extensive analysis of the actual causes of our financial crisis has shown is that it is government intervention, not a free market or laissez-faire capitalism, that is responsible in every essential respect.

The Laissez-Faire Myth and the Marxism of the Media

The myth that laissez faire exists in the present-day United States and is responsible for our current economic crisis is promulgated by people who know practically nothing whatever of sound, rational economic theory or the actual nature of laissez-faire capitalism. They espouse it despite, or rather because of, their education at the leading colleges and universities of the country, When it comes to matters of economics, their education has steeped them entirely in the thoroughly wrong and pernicious doctrines of Marx and Keynes. In claiming to see the existence of laissez faire in the midst of such massive government interference as to constitute the very opposite of laissez faire, they are attempting to rewrite reality in order to make it conform with their Marxist preconceptions and view of the world.

They absorb the doctrines of Marx more in history, philosophy, sociology, and literature classes than in economics classes. The economics classes, while usually not Marxist themselves, offer only highly insufficient rebuttal of the Marxist doctrines and devote almost all of their time to espousing Keynesianism and other, less well-known anti-capitalistic doctrines, such as the doctrine of pure and perfect competition.

Very few of the professors and their students have read so much as a single page of the writings of Ludwig von Mises, who is the preeminent theorist of capitalism and knowledge of whose writings is essential to its understanding. Almost all of them are thus essentially ignorant of sound economics.

When I refer to the educational system and the media as Marxist, I do not intend to imply that its members favor any kind of forcible overthrow of the United States government or are necessarily even advocates of socialism. What I mean is that they are Marxists insofar as they accept Marx’s views concerning the nature and operation of laissez-faire capitalism.

They accept the Marxian doctrine that in the absence of government intervention, the self-interest, the profit motive—the “unbridled greed”—of businessmen and capitalists would serve to drive wage rates to minimum subsistence while it extended the hours of work to the maximum humanly endurable, imposed horrifying working conditions, and drove small children to work in factories and mines. They point to the miserably low standard of living and terrible conditions of wage earners in the early years of capitalism, especially in Great Britain, and believe that that proves their case. They go on to argue that only government intervention in the form of pro-union and minimum-wage legislation, maximum-hours laws, the legal prohibition of child labor, and government mandates concerning working conditions, served to improve the wage earner’s lot. They believe that repeal of this legislation would bring about a return to the miserable economic conditions of the early nineteenth century.

They view the profits and interest of businessmen and capitalists as unearned, undeserved gains, wrung from wage earners—the alleged true producers—by the equivalent of physical force, and hence regard the wage earners as being in the position of virtual slaves (“wage slaves”) and the capitalist “exploiters” as being in the position of virtual slave owners. Closely connected with this, they regard taxing the businessmen and capitalists and using the proceeds for the benefit of wage earners, in such forms as social security, socialized medicine, public education, and public housing, as a policy that serves merely to return to the wage earners some portion of the loot allegedly stolen from them in the process of “exploitation.”

In full agreement with Marx and his doctrine that under laissez-faire capitalism the capitalists expropriate all of the wage earner’s production above what is necessary for minimum subsistence, they assume that the government’s intervention harms no one but the immoral businessmen and capitalists, never the wage earners. Thus not only the taxes to pay for social programs but also the higher wages imposed by pro-union and minimum-wage legislation are assumed simply to come out of profits, with no negative effect whatever on wage earners, such as unemployment. Likewise for the effect of government-imposed shorter hours, improved working conditions, and the abolition of child labor: the resulting higher costs are assumed simply to come out of the capitalists’ “surplus value,” never out of the standard of living of wage earners themselves.

This is the mindset of the whole of the left and in particular of the members of the educational system and media. It is a view of the profit motive and the pursuit of material self-interest as inherently lethal if not forcibly countered and rigidly controlled by government intervention. As stated, it is a view that sees the role of businessmen and capitalists as comparable to that of slave owners, despite the fact that businessmen and capitalists do not and cannot employ guns, whips, or chains to find and keep their workers but only the offer of better wages and conditions than those workers can find elsewhere.

Not surprisingly, the educational system and media share the view of Marx that laissez-faire capitalism is an “anarchy of production,” in which the businessmen and capitalists run about like chickens without heads. In their view, rationality, order, and planning emanate from the government, not from the participants in the market.

As I say, this, and more like it, is the intellectual framework of the great majority of today’s professors and of several generations of their predecessors. It is equally the intellectual framework of their students, who have dutifully absorbed their misguided teachings and some of whom have gone on to become the reporters and editors of such publications as The New York Times, The Washington Post, Newsweek, Time, and the overwhelming majority of all other newspapers and news magazines. It is the intellectual framework of their students who are now the commentators and editors of practically all of the major television networks, such as CBS, NBC, ABC, and CNN.[9] And it is this intellectual framework within which the media now attempts to understand and report on our financial crisis.

In their view, laissez-faire capitalism and economic freedom are a formula for injustice and chaos, while government is the voice and agent of justice and rationality in economic affairs. So firmly do they hold this belief, that when they see what they think is evidence of large-scale injustice and chaos in the economic system, such as has existed in the present financial crisis, they automatically presume that it is the result of the pursuit of self-interest and the economic freedom that makes that pursuit possible. Given this fundamental attitude, the principle that guides contemporary journalists so-called is that their job is to find the businessmen and capitalists who are responsible for the evil and the government officials who set them free to commit it, and, finally, to identify and support the policies of government intervention and control that will allegedly eliminate the evil and prevent its recurrence in the future.

Their fear and hatred of economic freedom and laissez-faire capitalism, and their need to be able to denounce it as the cause of all economic evil, is so great that they pretend to themselves and to their audiences that it exists in today’s world, in which it clearly does not exist even remotely. By making the claim that laissez faire exists and is what is responsible for the problem, they are able to turn the full force of their hatred for actual economic freedom and laissez-faire capitalism against each and every sliver of economic freedom that somehow manages to exist and which they decide to target. That sliver, they project, is part and parcel of the starvation of the workers in the inhuman exploitation of labor that, in their ignorance, they take for granted is imposed by capitalists under laissez faire. Their brainwashed audience, as much the product of the contemporary educational system as they themselves, then quickly follows suit and obliges their efforts to arouse hatred.

The result is summed up in words such as these, which appeared in one of the same New York Times articles I quoted earlier: “`We now have a collective anger, disgust, over our whole financial system and it’s obvious we’re going to get a regulatory backlash…’” [with] “a spillover effect to other industries because voters have the perception that ‘big companies are animals and they need to be put in their cages.’”[10]

In this way the enemies of capitalism and economic freedom are able to proceed in their campaign of economic destruction and devastation. They use the accusation of “laissez faire” as a kind of ratchet for increasing the government’s power. For example, in the early 1930s they accused President Hoover of following a policy of laissez faire, even as he intervened in the economic system to prevent the fall in wage rates that was essential to stop a reduced demand for labor from resulting in mass unemployment. On the basis of the mass unemployment that then resulted from Hoover’s intervention, which they succeeded in portraying as “laissez faire,” they deceived the country into supporting the further massive interventions of the New Deal.

Today, they continue to play the same game. Always it is laissez faire that they denounce, and whose alleged failures they claim need to be overcome with yet more government regulations and controls. Today, the massive interventions not only of the New Deal, but also of the Fair Deal, the New Frontier, the Great Society, and of all the administrations since, have been added to the very major interventions that existed even in the 1920s and to which Hoover very substantially added. And yet we still allegedly have laissez faire. It seems that so long as anyone manages to move or even breathe without being under the control of the government, laissez faire allegedly continues to exist, which serves to make necessary yet still more government controls.

The logical stopping point of this process is that one day everyone will end up being shackled to a wall, or at the very least being compelled to do something comparable to living in a zip code that matches his social security number. Then the government will know who everyone is, where he is, and that he can do nothing whatever without its approval and permission. And then the world will be safe from anyone attempting to do anything that benefits him and thereby allegedly harms others. At that point, the world will enjoy all the prosperity that comes from total paralysis.

[5] I arrive at these figures by calculating total checking deposits in January of 2001 and in August of 2008 as the sum of those contained in M1, the “sweep” accounts compiled by the Federal Reserve Bank of St. Louis, and money market mutual fund deposits, both retail and institutional. From these respective totals I subtract total bank reserves as of the same dates. I then subtract the result for 2001 from that for 2008 and divide the difference by the sum calculated for 2001.

[6] If the creation of checkbook money in excess of currency holdings is in fact an attempt at cheating, as I described it earlier, then it follows that a free market would actually require a 100 percent reserve.

[9] For a comprehensive refutation of all aspects of this intellectual framework, see George Reisman, Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996), chapters 11, 14, and passim.